Dollar Strengthens as US Data Boosts Bond Yields
The US dollar surged for the second consecutive day, pushing other major currencies to multi-month lows. This upward trend was driven by strong US economic data, which led to a spike in bond yields and reduced expectations of Federal Reserve rate cuts.
US Job Market Remains Robust
Data released on Tuesday revealed that US job openings unexpectedly rose in November, while layoffs remained low. Additionally, a separate survey showed that the US services sector activity accelerated in December, with a measure of input prices reaching a two-year high. This has raised concerns about potential inflation.
Bond Yields Soar
As a result, bond markets reacted swiftly, sending 10-year yields up by more than eight basis points to touch an eight-month high of 4.699%. This significant increase has shifted market expectations, with traders now pricing in just 38 basis points of easing from the Fed this year, with a first cut potentially happening in July.
Fed Rate Cut Expectations Diminish
“We’re seeing very strong US numbers, which has rates going up,” said Bart Wakabayashi, Tokyo branch manager at State Street. “There’s even discussion about whether they’ll cut or may even hike? The narrative has changed quite significantly.”
Markets Await Key Labour Data
Traders are anxiously awaiting key US labour data, set to be released on Friday, as well as the inauguration of Donald Trump on January 20. Trump’s second presidency is expected to begin with a flurry of policy announcements and executive orders, which could impact the market.
Dollar Index Rises
The dollar index rose 0.15% to 108.86, nearing its two-year peak of 109.58 reached last week. In contrast, other currencies struggled to gain traction. The yen weakened, approaching the 160 per dollar level that triggered intervention last year, while the euro fell 0.16% to trade around $1.0323.
Euro Zone Inflation Rises
Despite rising inflation in the euro zone, markets are still pricing in 100 basis points of easing from the European Central Bank this year. The lack of strong leadership in Europe, combined with uncertainty surrounding Trump’s tariffs and NATO, has made euro bulls cautious.
Antipodean Currencies Plummet
The contrast between the solid US economy and weak data in Australia and New Zealand has led to the Antipodean currencies falling to multi-year lows. The kiwi hovered at $0.5621, while the Australian dollar languished at $0.6221, nearing a 2022 low of $0.6170.
Leave a Reply